AP Automation

Outsourcing Accounts Payable - Is it really possible?

Outsourcing accounts payable has been on the rise in recent years, and any business considering a change will ask: Is it really a good idea?
Ewell Torphy

Introduction to accounts payable

Accounts payable is a business process within the accounting department that directly affects the cash flow. 

Cash flow refers to the amount of cash available to cover day-to-day operations and pay liabilities such as creditors on time.  The saying: ‘Cash flow is king’ still applies today.  More businesses fail for lack of cash flow than profit [1]

Most organizations desire to focus on their core business rather than throw resources at support functions.  For this reason, outsourcing became popular as a business strategy in the 90s and continues to be used today. 

Outsourcing accounts payable has been on the rise in recent years, and any business considering a change will ask:  Is it really a good idea?

The only way to answer that is to investigate the strategy's validity and why others have found value in doing it.

What is Business Process Outsourcing (BPO)?

BPO is a method of sub-contracting business processes and related tasks to a third-party provider. [2]  Services can be outsourced to local or international providers, depending on the nature of the business.

As new technology becomes available,  companies may prefer to outsource functions to a provider that will carry the cost of this new technology.  The appeal of outsourcing lies here because the cost of upgrading technology, training employees and adapting processes can be more than the company wants to invest.  

Time and staff resources can be allocated to processes that the business views as part of their core business

An overview of Accounts Payable (AP) as a business process

Most accounts payable processes are broken up into these steps. Ideally, there should be a segregation of duties at each step. If this is not possible, then at least three different controls must be in place.  This will ensure that audit requirements are met.

Post 2021 challenges for AP Processes

Remote work increased during the pandemic and will remain in place to some degree in 2023 and beyond. Financial executives have turned their attention to efficiency in operations, reducing costs and automating basic accounting tasks. Coupled with this is the necessary re-design of processes that will support these objectives.

In the USA, accounting positions are ranked as the 5th most difficult skill set to replace.  

Companies that cannot find qualified and skilled staff will naturally look for alternatives to complete their AP process [3]  In this situation, you are constantly in training mode and there are higher risks of errors due to the inexperience of the AP department.

AP process headaches make it ripe for outsourcing

The following reasons are given for why companies want to hand over their AP operations to payable outsourcing companies:

  • Lack of standardized process across an organization, causing invoice processing faults which cut into cash flow
  • Late payments due to late processing of invoices or inaccurate invoices
  • The increasing cost of staff replacement owing to the shortage of skilled staff and high turnover
  • High paper volumes and storage costs
  • Lack of real-time data about cash flow, pending payments and vendor queries

How does accounts payable outsourcing work?

Accounts payable outsourcing companies such as Payvy present their offerings in various forms.  Some will take over your entire AP process. Others will put new technology to good use by managing invoice processing and vendors within one system.  

Organizations consider two main models when looking at payable outsourcing services.

  1. Nearshore models

AP outsourcing given to countries with a shared border.  A country such as the USA has the benefit of neighbors with excellent outsourcing structures and English-speaking populations. 

For Europe, the possibilities are even greater since they use services from both European countries and Asia.  This means the culture and time zones are less of a hurdle than offshore models.

  1. Offshore models (international)

Accounts payable outsourcing services in another country are used.  Since services in the USA can be costly, companies look further afield where the dollar has greater buying power.  Countries in East Asia are popular for their accounts payable outsourcing services.

An important factor in this decision will be English proficiency, internet connectivity and time zones.

Source: Interventure

Potential outsourcing problems to watch for

Trusted and reliable payable outsourcing providers may be hard to find and it can be a process of trial and error.  Understanding where the pitfalls are can help you implement your strategy successfully.

- Failing to vet and select a service provider properly

There must be careful research and evaluation of potential service providers.  This ensures they have the expertise and experience necessary to handle your accounts payable needs.

- Not clearly defining the scope of work with the service provider

It is important to clearly define the tasks and responsibilities that will be outsourced and to communicate these expectations in writing.

- Failing to establish clear lines of communication

It is essential to establish clear lines of communication with the service provider so that challenges and changes to the process can be discussed promptly.  

- Improper management of the transition process

A smooth transition is the most important aspect of a successful outsourcing relationship. Carefully plan and manage the transition to ensure all necessary information and processes are transferred to the service provider.

- Not reviewing and updating the service provider agreement regularly

Reviewing and updating the outsourcing agreement may be necessary as your business grows and changes. Schedule regular reviews to discuss changes to services and outputs. 

- Failure to check how data will be stored, secured and protected by the service provider

A growing number of hackers are using malware, spyware and ransomware to access companies' private information. You must check that you can easily access your data. A cloud storage service is one option to achieve security for your data.  Agree on who may access your data as part of the service agreement. 


Difference between AP outsourcing and AP automation

Accounts payable (AP) outsourcing and AP automation are two different approaches to managing the process of paying bills and invoices.

AP outsourcing refers to hiring a third party to handle the accounts payable process. This can include a dedicated in-house team, a third-party service provider, or both.  AP outsourcing allows you to hand over the entire process or certain parts.

Processes that are good candidates for outsourcing include:

  • Physical invoice scanning to electronic format
  • Indexing of invoices
  • Invoice processing
  • 2-way and 3-way matching
  • Payment preparation
  • Payment creation
  • Vendor inquiries
  • Month-end close and reporting 

AP automation, on the other hand, refers to the use of specialized software to automate and streamline the accounts payable process. AP automation can include tasks such as invoice scanning and data entry, vendor payment, and reporting.

Both AP outsourcing and AP automation can offer benefits such as cost savings, increased efficiency, and improved accuracy. The right approach for your business will depend on your specific needs and resources.

Payvy provides a high-velocity accounts payable service that helps growing companies reduce overheads, speed up processing and manage cash.

Source: Pexels

Why would you want to outsource AP?

The business benefits of outsourcing AP are as follows:

Cost saving

Research has shown a reduction of 30-40% in labor costs and up to 20% in productivity efficiency [4]

Increased efficiency

An experienced AP team with some level of software automation can handle the processing of invoices more efficiently.  This will reduce the time to payment time of invoices, giving real-time cash flow data

Access to specialized expertise

The cost of highly skilled AP professionals is carried by the service provider, and you receive the benefit of this

Improved vendor relations

Efficient processing of invoices and early payments will increase the credibility of your business.


Outsourcing allows you to scale your business up or down as necessary. This gives your flexibility to handle fluctuations in workload.

Increased focus on core business

In-house resources can be used to concentrate on building your core business instead of invoice processing


AP Metrics to understand before outsourcing

Measuring the performance of your current AP processes is key for making a decision to outsource the AP function.  Some metrics to consider:

  • Number of full-time employees (FTEs) processing invoices vs. the volume of invoices per year
  • Cost of labor vs. the number of invoices processed
  • Number of Invoices processed per FTE
  • % accuracy achieved in invoice processing (first-time error-free) 
  • Days payable outstanding
  • Cost per invoice processed

These measures will help you to figure out where the opportunities are in your AP process.

Typical outsourcing service models

Platform Models

Turnkey Model

Service provider offers an AP suite with key services such as invoice processing and payments via a platform

Service provider manages the AP function in-house, utilizing offshore/nearshore services.  

In conclusion, is it really possible?

Yes, it is possible to outsource accounts payable functions. 

There are several benefits to outsourcing accounts payable, including cost savings, increased efficiency, and access to specialized expertise. It can also free up time and resources for your business to focus on other areas of operation.

There are several options for outsourcing accounts payable, including hiring a dedicated in-house team, using a third-party service provider, or using specialized software.

Plan carefully before you choose a service provider and hand over parts of your AP process.  The transition period will determine much of the success of your strategy. Take time to do it systematically, and it will pay off in the long run. 


[1] https://www.thebalancemoney.com

[2] https://www.investopedia.com

[3] https://www2.deloitte.com

[4] https://www.auxis.com

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